An in vitro model system has been developed for the study of the interrelationships between differentiation and carcinogenesis in hormonally responsive mammary epithelial cells. The epithelial cells lining the ducts and alveoli of the mammary glands of Sprague-Dawley rats are separated from stromal and fat cells by enzymatic digestion followed by density gradient centrifugation. These epithelial cells are susceptible to chemical carcinogens and proliferate when added to a hormone-supplemented medium. Whereas normal mammary epithelial cells have a finite life span of approximately 2-3 weeks, after carcinogen treatment cells can be subpassaged and cultured for three months. Carcinogen-treated mammary epithelial cells acquire anchorage-independent growth and form adenocarcinomas when injected into nude mice. Transformed cells retain differentiated features including keratin and mucin secretion. They also continue to possess estrogen receptors as indicated by their susceptibility to the cytotoxic action of tamoxofen. The extended latent period for malignant transformation and retention of differentiated function provide an epithelial model system for study of differentiation and carcinogenesis.